Lawmakers examine looming Cook Inlet gas shortage

Issues with Cook Inlet gas production and looming shortages predicted by utilities received top billing in the opening days of the Alaska Legislature. But some lawmakers expressed dismay about tussles concerning how much gas is really in the basin, how much is immediately producable, and what the resource means for the future.

House Energy Committee Co-Chair Rep. Charisse Millett characterized the sentiment Wednesday when she said she doesn’t feel like residents have “gotten the straight scoop” during a presentation from Anchorage utility representatives and an official from Petrotechnical Resources of Alaska.

Millett, R-Anchorage, said she felt utilities were saying Cook Inlet consumers were in “dire straights” while a recent presentation from Alaska Department of Natural Resources director Dan Sullivan contradicted such a sentiment. She said that pointed out a “fundamental disconnect” between the two and that was “disturbing.”

“It is very concerning that we have two groups of people that one says we are awash with gas in Cook Inlet and then another group saying that we have gas but we are just not producing it,” she said.

PRA’s Bill Van Dyke updated the committee on the gas shortage study the group recently conducted and later updated.

“In 2010, the shortfall was predicted to occur as early as 2013,” he said. “Now it looks like it is going to occur as early as 2014 as a result of additional drilling and compression.”

Van Dyke said Cook Inlet producers bear a total demand of 80 billion cubic feet of gas per year, of which about 69 bcf is demand from Southcentral utilities. He said that about 13 percent of Cook Inlet’s gas is used to run field operations themselves.

“It is not just a utility issue,” he said.

Van Dyke said Cook Inlet gas production declines are “just like” the oil production declines on the North Slope in that the big, historic fields have been stretched in how much they are producing.

“We are showing a 16, 17-percent annual decline rate and that is a pretty steep decline rate to chase,” he said. “We are losing 10s of millions of cubic feet of deliverability each year as a result of the decline. So you have to find a lot of new gas just if you want to keep gas (supply) flat let alone increase it.”

Millett pressed Van Dyke on that statistic comparing it to a Monday presentation Sullivan and others gave to the Senate Resources committee.

“For me it is frustrating because I am not getting a straight answer from the administration, but I hear not only from PRA, but from every single utility that we are talking about a reality of importing gas into Cook Inlet when we have a group of people telling us that, ‘No fear, no fear, we have more gas than we could want,’” she said. “Yet you just said the decline rate is 16 percent which is phenomenal.”

Van Dyke said the two groups — utilities and DNR — are not disconnected. Rather they have a different approach to studying gas reserves, resources and potential in Cook Inlet. And while DNR looks at “theoretical gas,” that doesn’t mean much for utilities looking to satisfy immediate demands, Van Dyke said.

“At the end of the day it comes down to what can the wells produce next year, what can they produce in 2015, what can they produce in 2020,” he said. “It is not theoretically if we drilled a couple hundred exploration wells how much gas might we find?”

Rep. Mike Hawker, R-Anchorage, who sat in on the presentation, said he heard Sullivan say that the prospect of sizeable Cook Inlet discoveries coming to market would undermine the need for other long-term gas solutions. Hawker has worked with House Speaker Mike Chenault, R-Nikiski, on a bill that would pave the way for a North Slope gas pipeline to be built.

“Now I am interpreting, but it is what I have been told by the department regularly, ‘Don’t worry your pretty little heads, there is plenty of gas in the Inlet. That prospect is going to take care of it,’” he said. “It is undermining any real need for small diameter gas line from the North Slope or the import option that is being investigated by all of our utilities.”

Hawker then asked Van Dyke if he would “bet your community” or have a business rely on the prospect of a major Cook Inlet gas find or on the results of probabilistic gas studies.

“There is nothing wrong with those kinds of studies, but I would not use those studies as my business plan if I were a utility,” Van Dyke said.

During a Monday presentation to the Senate Resources committee, Division of Oil and Gas Petroleum Geologist Paul Decker said Cook Inlet has “quite large” undiscovered resources that are technically recoverable.

“We, as I will show, at the DNR have done a significant amount of study and we believe there are considerable volumes of gas at different levels of certainty left in the basin,” he said. “Certainly enough to meet the average annual demand for a number of years.”

That includes a mean estimate of 19 trillion cubic feet of gas, 600 million barrels of oil and 46 million barrels of natural gas liquids, Decker said.

“We don’t really know what’s down there so the best we can do is to make our best guess, which is kind of the mean, roughly speaking,” he said.

Three of those fields — the Beluga River Unit, Trading Bay Unit Grayling Gas Sands and the North Cook Inlet Unit — contain 355 bcf in undeveloped gas resources.

Van Dyke said DNR’s study and PRA’s study aligned closely on “reserves,” a term used to describe oil and gas volumes proven by drilling. “Resource” is a broader term used to describe unproven volumes or volumes discovered, but not yet produceable. Van Dyke said utilities aren’t concerned about resource estimates or total potential.

“When you just look at proven gas reserves, the numbers are very close,” he said of DNR and PRA data. “The differences are just insignificant.”

Said Van Dyke, “It is interesting to know what other gas might be out there, but what we need to know is what the proven reserves are.”

Decker said Division of Oil and Gas reserve gas estimates are made using several different analytical tools such as decline curves, material balance, and geologic volumetric analysis. PRA’s study used only the decline curve analysis, which Decker said is effective for what the utilities wanted their study to accomplish.

Regardless, the basin still has significant potential, some in reserves, some in resources, he said.

“From material balance analyses, we found about one-third more gas that we would categorize as reserves — fairly certain volumes of gas in the existing fields throughout the basin than you would see doing strictly decline analysis by itself,” he said, adding that geologic volumetrics beyond that can map out significantly more reserves.

But, Decker said talk of nearing gas shortfalls aren’t to be written off.

“This is a real concern and we don’t have any disagreement with that,” he said.

Sullivan cautioned, however, that PRA’s study should not be interpreted to mean the Cook Inlet gas resource is “depleted.”

“Gas that is not contracted gas is not the same as a depleted reservoir,” he said. “I think that gets mixed up in a lot of the reporting. I think when you read the newspaper articles about the challenges in Cook Inlet people assume that we are out of gas. We are not out of gas.”